SINGAPORE: In alignment with Prime Minister Lee Hsien Loong’s recent statement, Deputy Prime Minister Lawrence Wong asserted that Singapore is not “oversaving.”
Instead, he emphasized that the national reserves are expanding at a pace that is “barely keeping pace” with economic growth.
During an exclusive interview with Singapore media outlet CNA, PM Lee highlighted that Singapore currently possesses reserves deemed sufficient for “most circumstances.”
However, he emphasized that it would be a “significant misconception” to assume this state will persist, given that the nation’s spending requirements are already surpassing the rate of revenue growth.
Deputy Prime Minister Lawrence Wong, who also interviewed for the documentary ‘Singapore Reserves Revealed,’ echoed PM Lee’s sentiments.
Similar to PM Lee, DPM Wong declined to disclose the specific reserve figures, citing national security as the underlying rationale.
“We don’t go around telling the world what our military capabilities are, why should we?”
DPM Wong denied that Singapore is ‘oversaving’
He debunked the ‘misconception’ that Singapore’s abundant reserves justify increased withdrawals from the Net Investment Returns Contribution (NIRC).
“Some people think … just take more from the NIRC, what harm does it do? The other misconception is we already have so much, so what’s the harm?”
DPM Wong who is also Finance Minister, defended the long-standing government stance, asserting that reinvesting returns into national reserves is crucial for securing the nation’s financial future.
Without such reinvestment, the value of the reserves would dwindle over time, he said.
“If we don’t have anything going back into the reserves, the value of the reserves will diminish over time.”
According to GIC’s 2022/23 annual report, released last month, their 20-year annualized real rate of return reached 4.6% for the year ending on 31 March. This marked an increase from the previous financial year’s 4.2% and was the highest recorded since 2015, when real returns were at 4.9%.
During his interviews with CNA, DPM Wong provided an illustration involving the country’s reserves generating a 4% return after factoring in inflation.
He explained, “If we take half, it means 2% goes into the Budget, and 2% goes back into the reserves.”
Given Singapore’s annual economic growth rate of around 2%, DPM Wong highlighted that this situation signifies that the reserves are only “barely keeping pace” with the economy’s expansion.
He emphasized, “So, it’s not as though we are oversaving.”
In the interviews, DPM Wong highlighted a common ‘misconception’ surrounding reserves, stating, “Sometimes we think that the reserves are there only for future emergencies.”
However, he underscored that reserves also function as an endowment, fulfilling the needs of today, and benefiting all citizens in the present.
Highlighting Singapore’s financial landscape, Mr. Wong revealed a “structural deficit” equivalent to approximately 3% of the gross domestic product within its primary fiscal balance.
The NIRC assumes a pivotal role in bridging this fiscal gap. In its absence, Singapore would face the need to curtail spending by nearly 3% of the GDP, as explained by Mr Wong.
“That’s a lot. It will mean less public housing for Singaporeans. It will mean less infrastructure. Our trains, our buses – we will have to cut back on services,” said Mr Wong.
“This is tightening of the belt to an extent that no one has ever felt before.”
Singapore first tapped on reserves in 2009, then during the COVID-19 pandemic
In addition to these aspects, the reserves are also tapped for various other necessities, including special drawdowns during periods of crisis.
In 2009, Singapore’s first utilization of reserves amounted to S$4.9 billion (approximately US$3.6 billion) to bolster the economy amidst the global financial crisis.
Subsequently, during the COVID-19 pandemic spanning from 2020 to 2022, Singapore accessed the reserves thrice, amounting to about S$40 billion.
DPM Wong Wong, having held a key role in steering the country’s COVID-19 multi-ministry task force, emphasized the value of employing reserves rather than resorting to borrowing—a path more commonly adopted by other nations.
“The only alternative would have been to borrow, which is what most other countries do.”
“When you borrow, you have great uncertainty. And therefore, I think it would have impacted the swiftness and the decisiveness of our response,” he added.
DPM Wong highlights reserves played a critical role in securing COVID-19 vaccines
Pointing to Singapore’s achievement as the first Asian nation to secure Pfizer-BioNTech’s COVID-19 vaccine, DPM Wong underlined that reserves were “critical” in enabling this accomplishment.
“I have no doubt that without the reserves, we would have ended up with more lives lost to COVID-19, and certainly we would have ended up with a much higher unemployment.”
Singapore’s reserves also hold significance in financing significant undertakings, including major infrastructure ventures and land reclamation projects such as the Tuas Port development.
Mr Wong acknowledged the substantial costs associated with land reclamation projects, which yield benefits over the long term.
He stressed that, without resorting to past reserves for such initiatives, Singapore would likely need to borrow or allocate current resources—a constraint that the use of reserves effectively mitigates.
However, he stressed that one “should not get the mistaken idea that this is a draw on reserves”.
“Because when we use past reserves to create new land, the land is also protected as past reserves. And when we create the land and eventually sell the land for development, those land proceeds go back to the reserves again.”
“So from that point of view, it’s really just a conversion of assets from finance to land, and then back to finance,” he added.
PAP government previously rejected the Workers’ Party’s alternative proposal on reserves
The NIRC plays a crucial role, supporting approximately one-fifth of the government’s spending.
Since 2016, the NIRC has held the position of the primary contributor to the Budget. Nonetheless, in FY2022/2023, corporate income tax collections exceeded NIRC contributions, totaling S$23.1 billion.
These figures, derived from the latest government financial statements released in July, surpassed the NIRC’s contribution of S$22.4 billion.
Under the NIRC framework, the government can spend up to 50% of the net investment returns on net assets invested by GIC, the Monetary Authority of Singapore and Temasek – the three entities that manage and invest Singapore’s reserves – and up to 50% of the net investment income derived from past reserves from the remaining assets.
During the budget debate in February 2022, the Workers’ Party (WP) put forth a proposal to increase the draw from the Net Investment Returns Contribution (NIRC) for government spending from the existing 50% to 60%.
In the debate, Leader of the Opposition, WP chief Pritam Singh had to remind the PAP government not to raise the Goods and Services Tax (GST) which would ultimately be adding a financial burden to ordinary Singaporeans while most still recovering from the economic impact of COVID-19 pandemic.
He rejected the notion that GST, hailed as a major and stable revenue source, is irreplaceable, emphasizing alternative options such as adjustments to the reserves framework.
Singh emphasized the Workers’ Party’s support for fiscal prudence as a governance principle and countered allegations that their proposal would deplete reserves.
Drawing from former Prime Minister Goh Chok Tong’s metaphor of reserves as a ‘golden goose,’ Pritam Singh stressed that Workers’ Party conveyed the party’s stance that Singapore can continue to grow the golden goose, but at a slower rate.
He highlighted the upcoming strain on healthcare and welfare systems due to an aging population.
WP Chief: we should also not fatten the golden goose at the expense of the people’s well-being
“For the very Singaporeans whose energies contributed to the reserves and who played their part to fatten the Golden Goose, spending for them in their golden years, and at their time of need should not even be a question. ”
Pritam Singh noted that the PAP Government’s views align with this perspective over time, evident from Prime Minister Goh’s 2001 statement on reserve protection.
Subsequent PAP administrations, however, enacted deliberate shifts like the 2008 transition to Net Investment Returns and the 2015 incorporation of Temasek, driving the NIRC to become the prime revenue source, growing from $2 billion in 2006 to nearly $22 billion for the upcoming fiscal year despite efforts to temper reserve growth.
“Here, I ask this Government not to rule out changes to our Budget framework. Just as we should not kill the golden goose, we should also not fatten the golden goose at the expense of the people’s well-being, ” Mr Singh told the Parliament.
While Members of Parliament (MPs) from the Workers’ Party (WP) and two Non-constituency MPs (NCMPs) of the Progress Singapore Party have put forth their own alternative proposals, the PAP Cabinet ministers, including DPM Wong, have upheld the current framework, asserting its fairness and stressing the importance of maintaining this approach in view of the future generation’s requirements.
At the time, DPM Wong claimed that both WP and PSP had painted a “false, distorted and misleading picture” of Singapore’s reserves.
“They have assumed that the present rules result in an accumulation of more reserves than is necessary but that is not the case, our reserves are growing but the size of our economy, the challenges we face, and the complexity of needs are growing even faster,” he said.
“Drawing more NIRC now means that our children and the next generation will end up paying more taxes.”